What the Swiss National Bank Will Do About the Franc

The Swiss National Bank will meet this week amid chatter about a possible change in the target for the franc. Here's how to get ready.

Time for a Swiss watch. (Sorry.) The Swiss National Bank is meeting this Thursday to assess monetary policy, and officials there have indicated they are concerned about the franc's continuing strength.

Investors sure seem to be on the alert for some kind of move to bring the franc back to earth. Leveraged funds flipped to short positions in the Swiss franc over the past week - the first time that has happened in 13 months, according to Greg Anderson, senior G10 FX strategist at Citigroup. Richard Cochinos and John Hopkinson, analysts at Bank of America Merrill Lynch, calculate that the market is assigning a 25% probability to the euro- Swiss franc floor being raised to 1.25 - a minority view, but still. There is even some talk that the bank could set a floor of 1.30.

Predicting central bank moves is a tough game, but you can watch one off-the-beaten path indicator. The Bank of America Merrill Lynch analysts say that Swiss National Bank officials play close attention to the micro survey of Swiss business that appears in the bank's quarterly bulletin.

"Weakening of foreign demand and the deterioration of companies’ earnings have negative feedback loops on investment, employment and private expenditure. Hence, the SNB tracks the results closely," they wrote in a note to clients. "The survey deterioration in September was a key factor in the SNB’s intervention, as well as the barrage of verbal intervention in January and December last year."

Stay tuned.

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